Video Is Turning Amazon Into Much, Much More Than the Everything Store

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Video Is Turning Amazon Into Much, Much More Than the Everything Store

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Back in 2011, Amazon did something that at first glance seemed, well, a little weird. As part of its wildly popular Prime service, which offered unlimited two-day shipping from the online retailer for one annual fee, subscribers also would get access to its nascent video streaming service. What video had to do with shipping wasn't entirely clear, but, hey, why not?

Five years later, Amazon Prime's streaming video option, now called Prime Video, is a very different, award-winning beast. Its first big original series, Transparent, has won five Emmys and two Golden Globes, among its many accolades. It's premiered critically acclaimed shows like Man in the High Castle. It bought four indies at sky high prices at Sundance. You can subscribe to Showtime or Starz directly from the Amazon Video app without a cable TV plan.

What seemingly started as a way to get people to sign up for two-day shipping has turned into a major force in the world of entertainment.

In short, what seemingly started as a way to get people to sign up for two-day shipping has turned into a major force in the world of entertainment. Prime Video may have started as a perk to draw in more Prime members. Now, it's just as easy to believe that Prime Video may be its own draw, and two-day shipping a nice perk. For $99 a year—cheaper than a year of Netflix, which doesn't ship anything other than DVDs.

But wait, there's more. As it continues to experiment, video on Amazon may not only serve up competition to traditional studios and other streaming services but to the other major tech platforms: Facebook, Apple, and Google. Amazon may have started with online shopping. But video could be its way into everything else online.

"We live in a time right now where nobody can walk around feeling 100 percent confident in their traditional business models," says Will Richmond, a longtime online video researcher and editor of industry site VideoNuze. "That’s an environment in which Amazon is perfectly suited to thrive."

The Content Crusade

In the battle for your attention being waged by the major tech platforms, the goal is to capture as much of your time as possible to the exclusion of any other company's app, site, phone, or bot. To become your world, the place where you shop, search, chat, and seek entertainment, Amazon must give you a reason to keep coming back—not each week to buy diapers or books, but every day and, ideally, on Amazon devices. One way to do that is to offer TV shows and movies you can't find anywhere else.

Not that this is Amazon's first foray into the content business. After all, the company has sold DVDs for years. And you may have heard it started out selling books. In the late aughts, however, the company moved from simply selling discs to offering shows and movies for download and, eventually, streaming.

“We knew digital was coming,” says Jim Freeman, vice president of digital video at Amazon. “We felt the need to build that digital service, so our customers could stay with us and continue to use Amazon as a retailer for entertainment. That was the genesis for the original video effort.”

Imagine pitching the idea as a startup: 'It's HBO meets Walgreens.'

In 2011, video became a Prime perk. But the company saw that to get members to really care about video on Amazon, it had to offer something more distinctive and original. In 2013, the company began to do just that, premiering pilots for 14 shows that year. The company let customers rate the shows and, using that data, decided which to extend to full seasons.

Its first efforts weren't that memorable. (Alpha House or Betas, anyone?) Since then, however, the company seems to have found its chops. Its production house, Amazon Studios, has developed shows ranging from Transparent to nonfiction docu-series such as The New Yorker Presents. To decide what to make, the company says it looks at what customers watch and buy, and what they say in reviews. It also, understandably, looks at the broader market to gauge what you can't get elsewhere, and what kinds of shows might reward risk-taking.

"There are 400 shows on TV," Roy Price, the vice president of Amazon Studios, says. “It’s not about just getting the audience to hang around at 8:30 [at night]. You have to create a show that people are really going to demand in the on-demand environment—they’re going to seek it out."

The company has also long had its eye on movies—it says it plans to release 12 to 14 original films each year. It released the first, Spike Lee’s Chi-Raq, in February. Earlier this year, it picked up four indies at Sundance. “Movies and TV work fairly differently in subscription video services,” Freeman says. “TV is where you see a lot of repeat engagement. Avid fans of certain shows come and customers love it. Movies tend to draw people into a service for the first time.”

A Robotic Heart

Amazon, however, isn’t a studio at heart; it’s a retailer and a tech company. So it's not surprising that the way it does video dovetails with both of those strengths. The Amazon Video app, for example, includes "X-Ray," a feature that allows the company to add a layer of clickable data on your screen, such as the names of the actors in a scene, served up by Amazon-owned IMDB. Its Fire TV—Amazon's answer to Apple TV, Chromecast, and Roku—includes "ASAP," a playback feature that predicts what you want to watch next—much like it suggests other products you might want to buy—and begins buffering it before you need to watch it. Meanwhile, Freeman says Amazon's video service supports 4K and HDR for some originals.

Nice perks, but as with Prime Video itself, what seems like a perk at first has the potential to contribute more broadly to Amazon's growth as a business. Imagine, for example, layering clickable ads over an Amazon show instead of actors' names—ads for things you can buy on Amazon. (Spoiler: They've already tested clickable ads on The Fashion Fund, Amazon's own fashion reality show.) Imagine deciding you need to buy a new 4K TV (on Amazon, duh) so you can see Amazon's shows in all their high-def glory. Imagine buying a Fire TV because it knows best what you want to watch on Amazon. This is Amazon's dream.

Your Everyday, Everywhere, Everything Store

To understand how big a deal video is for Amazon, you need to understand how big a deal Prime is. The company won't reveal how many Prime members it has beyond "tens of millions," but it's a crucial part of Amazon's business. (Recent estimates put the number at somewhere between 40 million to 55 million). And once subscribers shell out $99 to become Prime members, that initial outlay of cash turns them into remarkably loyal shoppers.

And video, it seems, only makes them more loyal. In late 2014, Amazon's chief financial officer Tom Szkutak revealed that Prime members who also stream video tend to renew their Prime subscription at "considerably high rates." People who watch videos on Prime, he said, also buy physical products through Amazon. “They’ve proven to themselves over time that by adding the video benefit it actually increased both acquisition and retention of Prime subscribers,” Richmond says.

This so-called Amazon "flywheel" effect, however, could wind up being even more consequential for the company than just Prime. Amazon has long sold itself as the everything store. Anything you want to buy, the pitch goes you can probably buy from Amazon. The thing is, you probably only buy stuff every once in a while. Think about it: How often do you buy diapers? Or books? Or a new TV?

But if you’re like the average American, you watch a few hours of TVeach day (even if it isn't on a TV). Video is sticky behavior, says James McQuivey, vice president and online video analyst at Forrester Research. “Minutes per day translates to more dollars per week.” In other words, the more time you spend watching Amazon, the more Amazon will be at the center of your attention. When you need or want to buy something, you'll either already be on Amazon—or you'll be more likely to think of Amazon first. Without really advertising at all, Prime Video becomes a kind of ad for Amazon as a whole.

Think about how crazy that is, how different from what really any other company offers. Imagine pitching the idea as a startup: "It's HBO meets Walgreens." That's effectively what Amazon is offering, but at a more massive scale, and all via your smartphone. Video might have seemed like a funny thing to pair with two-day shipping five years ago. But Amazon seems to have known what it was doing all along.